The Atlantic: Mnuchin’s Bank Was Reprimanded by the Same Department He May Lead

Documents show that state prosecutors and Treasury Department regulators believed Steve Mnuchin’s bank was mishandling foreclosures at the height of the financial crisis.


Alexia Fernández Campbell

In 2011, at the peak of the housing crisis, regulators for the Treasury Department ordered Steve Mnuchin and directors at OneWest Bank in California to fix the bank’s questionable handling of home loans. In a consent order filed that year by the department’s Office of Thrift Supervision, regulators accused the bank of using “unsafe or unsound” methods for dealing with mortgage loans and foreclosures in 2009 and 2010. They found that bank employees and third-party providers lied in foreclosure paperwork filed in state and federal courts about information related to the ownership of many home loans, money due on the loans, and the fees chargeable to the borrower. They also accused employees of filing court documents with signatures that were not notarized and initiating foreclosures and bankruptcies without all the necessary paperwork. The office additionally claimed that the bank “failed to devote to its foreclosure processes adequate oversight, internal controls, policies, and procedures, compliance risk management, internal audit, third party management, and training.”

As a result of the examination, the Treasury Department’s Office of Thrift Supervision (which later merged into the Office of the Comptroller of the Currency) ordered the bank to work with an independent monitor to address these issues. That involved requiring Mnuchin and other bank executives to write rules about how employees are supposed to work with borrowers to handle foreclosures, creating a process to ensure employees’ statements in court documents are accurate, plus a long list of other rules to make sure employees don’t break the law. Regulators found the same problems at the nation’s largest mortgage lenders, including Bank of America and Citibank, and ordered them to do the same. OneWest complied with this legal order and in 2015, the Treasury Department released the bank from the monitoring agreement.

Mnuchin—a former Goldman-Sachs partner—is now preparing to lead the same department that once reprimanded him for his banking practices. The Treasury Department’s findings mirror some of those found by state prosecutors in a 2013 memo leaked this week to the The Intercept, which alleges that Mnuchin’s bank broke foreclosure rules and engaged in “widespread misconduct” during the housing crisis. In the confidential memo, consumer-protection lawyers for the California attorney general’s office claimed that employees at OneWest Bank were manipulating home auctions, failing to properly notify homeowners about foreclosure proceedings, and backdating signatures, possibly to speed up foreclosures. Of the 913 subpoenaed loan documents they reviewed, they found that 909 were likely backdated.

Barney Keller, a spokesperson for Mnuchin, told me in an email that the Treasury Department’s findings are “garbage” and the leaked memo is “meritless.” Regarding the regulatory findings, he said that “the exact same consent order was agreed to by all 14 of the major financial institutions that were heavily involved in the mortgage industry. This order required all of the institutions to complete the independent foreclosure review, which OneWest was the only bank to successfully complete.”  While this is true, it’s important to note that, as a result of the review, OneWest still had to pay roughly $8.5 million in remediation to more than 10,000 customers for “errors that resulted in financial harm.” Keller added that Mnuchin had “helped modify over 100,000 mortgages he did not even originate and in thousands of cases even reduced borrower principal.” Of course, banks in many cases were already required to do that.

Mnuchin’s investment in OneWest Bank was a profitable one. He purchased the failed Pasadena-based bank, then known as IndyMac, in March of 2009 and renamed it OneWest. The purchase came with tens of thousands of troubled mortgage loans, most of which were adjustable-rate. These mortgages had monthly payments that ballooned during the housing crisis and led many homeowners to default. When prosecutors sent the confidential memo detailing their allegations to California’s then-Attorney General Kamala Harris in 2013, OneWest had foreclosed on 35,000 homes in the state and was in the process of foreclosing on another 45,000.

The results of the state’s investigation match many of those highlighted by the Treasury Department’s regulators, though California’s prosecutors went a step further by alleging that the bank was breaking the law, specifically the state’s Unfair Competition Law. In their memo, prosecutors for the state urged Harris, the attorney general, to sue the bank for unfair business practices, but she declined to take on the case, according to The Intercept.

A review of federal court records shows that more than 800 lawsuits were filed against OneWest while Mnuchin owned the bank. About a third of those lawsuits came from homeowners who claimed that the bank improperly foreclosed on their properties. A recurring complaint was that the bank didn’t give owners a chance to modify their loans to avoid losing their homes, something the federal government required the banks to do.

In a $5 million, class-action lawsuit filed in 2012, more than 100 homeowners sued OneWest Bank for refusing to modify their loans even though they met all the program’s requirements under the law, they claimed. They also accused bank staff of encouraging them to default on their mortgage payments to qualify for the loan-modification program, and telling them that the bank was missing documents that homeowners said they had already sent. “Because of OneWest’s breach, [plaintiffs] have been injured, including suffering negative credit consequences and some losing their homes through foreclosure sales that should have never occurred,” the complaint states. The bank, now under new ownership, settled the case this past August for an undisclosed amount. Other cases against the bank were dismissed or settled, and several remain open.

In 2015, Mnuchin sold the bank, which Bloomberg estimates earned him $380 million in personal profit. It was a lucrative investment that now poses a huge hurdle for him during the confirmation process to become Treasury Secretary. Senator Ron Wyden, the lead Democrat on the committee that will hold his confirmation hearings, told The Wall Street Journal last month that Mnuchin has a “history of profiting off the victims of predatory lending.” But while the hearings might become heated, if Mnuchin has enough support from Republicans, in the end that heat won’t really matter.


6 Responses

  1. Neil: We all know this non-judicial magistrate issue is a grave problem. Let’s start from the beginning here and look at the violations of rights, particularly when a magistrate can be a former teacher, policemen, etc…with no experience. These people are making decisions to “steal” homes, property.

    It’s bad enough judges have little experience and work out of their expertise and jurisdiction, making up what they do not know. Here we are with deed offices stock-full of foreclosures by people who are inept and no one is challenging their ability and by whom they got this super authority.

    The dirty little secrets the lawyers know. All while they take retainers, hourly fees knowing these magistrates have no clue and no one appears to be objecting. Am I missing something here?

  2. ANON- good post-

  3. Who owns the collection rights after a loan defaults and is removed from the REMIC by swap out derivatives? Appears Mnunchin did. But, that is not how those loans were foreclosed upon. I am sure they were foreclosed upon by the servicer on behalf of the trustee – which is false. Derivatives are never discussed in courts. Derivatives are contracts – not securities, which swap default loans out. The trust investors have been paid. Thus, Mnuchin violated the FDCPA by not disclosing who the debt is currently owed to. This is happening all over. The courts are not capable of understanding derivatives. .

  4. Look at the qualifications in North Carolina to be a Magistrate?
    How has this gone unnoticed? And further, they are playing musical chairs with the Plaintiffs. Does one need to notice the court in order to remove and replace a Plaintiff? The rules have all been thrown out in North Carolina. Are they doing this is all non-judicial states?

    Neil, where are you on this piece?

    § 7A-171.2. Qualifications for nomination or renomination.
    (a) In order to be eligible for nomination or for renomination as a magistrate an individual shall be a resident of the county for which he is appointed.
    (b) To be eligible for nomination as a magistrate, an individual shall have at least eight years’ experience as the clerk of superior court in a county of this State or shall have a four-year
    degree from an accredited senior institution of higher education or shall have a two-year NC General Statutes – Chapter 7A Article 16 4
    associate degree and four years of work experience in a related field, including teaching, social services, law enforcement, arbitration or mediation, the court system, or counseling. The
    Administrative Officer of the Courts may determine whether the work experience is sufficiently related to the duties of the office of magistrate for the purposes of this subsection. In determining
    whether an individual’s work experience is in a related field, the Administrative Officer of the Courts shall consider the requisite knowledge, skills, and abilities for the office of magistrate.
    The eligibility requirements prescribed by this subsection do not apply to individuals holding the office of magistrate on June 30, 1994, and do not apply to individuals who have been nominated by June 30, 1994, but who have not been appointed or taken the oath of office by that date.
    (c) In order to be eligible for renomination as a magistrate an individual shall have successfully completed the course of basic training for magistrates prescribed by G.S. 7A-177.
    (d) Notwithstanding any other provision of this subsection, an individual who holds the office of magistrate on July 1, 1977, shall not be required to have successfully completed the course of basic training for magistrates prescribed by G.S. 7A-177 in order to be eligible for renomination as a magistrate. (1977, c. 945, s. 6; 1993 (Reg. Sess., 1994), c. 769, s. 7.13(a);

  5. Ran across what I believe is another new tactic today.
    I was reviewing the Court Clerks’ online case log and noticed that the caption (for the online case log) had been truncated to just “Gigantic International Bank,” rather than matching the caption on the original complaint, which is “Gigantic International Bank, as Trustee for Sack of Air Home Loan Trust 2001-0”. From my Garfield education, I learned early that “Gigantic International Bank” is NOT the same as “Gigantic International Bank, as Trustee”. The first being the actual bank, while the second is the Trustee, who happens to be a bank.

    Anyway, I called the Court Clerk today to request the online case log caption be corrected to show the entire matching caption as though it were a simple typo type edit. They refused, and stated it’s just a shorter version and all that other wording doesn’t really mean anything, it’s the bank that’s the creditor (she said ‘mortgager’). ……wait a minute, I thought, I’m not so sure that’s actually been determined to date. But, in any case, it’s not the bank suing me, it’s the Trustee. The case log caption makes it look like the bank. She still refused, again insisting all that other stuff just takes up space and doesn’t mean anything anyway. I told her I disagreed and objected to it not matching the caption in the original complaint. Now she starts to think I’m becoming argumentative (I was not, just stating the facts, mam) She was not comfortable with this discussion at this point. She then told me that I would need to write a request for this edit, then stopped and asked if I were represented by an attorney. I said yes. She then said, well, you’ll have to get with your attorney and make this request to them, then let them contact opposing counsel to get their consent for this edit. I thought, what-the-f***? Well, I said, it seems to me just a matter of _correcting_ the online case log to match the original complaint. She said no, you’ll have to get with your attorney.

    This is not a subtle difference as measured in legalese. While both are indeed ‘the bank’, a Trustee is suing on behalf of a beneficiary of the Trust, not with the bank being a beneficiary. Besides all that, another piece of education I received here is that the Trustee actually has no power to sue anyone according to their own PSA, so is compromised in another way by being in court.

    To me, it seems they’re trying to switch this Trustee out for the bank itself when the bank itself (not as Trustee) isn’t the one who filed the original suit. I’m thinking in order for the bank not as trustee to sue, it would need to withdraw the original suit and re-file a new suit in their own name.

    So, that’s my tactic today. Get the judge to dismiss the original suit and require them to re-file in the banks’ name if that’s what they want. If not, then, it MUST remain the Trustee, who happens to be a bank.

    And, they have to play by the rules of their own PSA. That is, if the Trust actually exists in the first place.

  6. Reblogged this on Deadly Clear and commented:
    Wonder how much of the $380 million Mnuchin donated to US Sen. Chuck Schumer for starting the rumor that took down IndyMac Bank so Mnuchin and His pals (including George Soros) could buy it?

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